The dollar traded 0.1 percent from its lowest this month against the euro amid speculation the Federal Reserve will maintain easy monetary policy to sustain growth in the world’s biggest economy.
The greenback, which has weakened against 15 of 16 major peers this year, remained lower as comments by Federal Reserve Chairman Ben S. Bernanke yesterday added to signs the central bank will embark on a third round of quantitative easing, or QE3. The Chinese yuan, South Korean won and Philippine peso rose as Asian stocks extended a global rally. Demand for the euro was supported amid prospects European finance ministers will agree to bolster the region’s debt-crisis firewall this week.
“The U.S. dollar is going to find it difficult to rally,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) Bernanke’s comments “were taken to mean the chances of QE3 were more likely,” Salter said.
The dollar traded at $1.3353 per euro at 7:18 a.m. in London, little changed from yesterday, when it touched $1.3368, the weakest since Feb. 29. The greenback has declined 2.9 percent this year against the common currency.
The yen was at 82.86 per dollar from 82.82 yesterday, when it slid 0.6 percent. The euro was unchanged at 110.65 yen, after gaining 1.3 percent yesterday.
The MSCI Asia Pacific Index (MXAP) of stocks rose 1.9 percent following a 1.2 percent advance in the MSCI World Index yesterday.
UBS AG said the euro may rise to $1.3489, the highest since Dec. 2, after it crossed above a resistance level yesterday.
Europe’s common currency broke the “the $1.3294 to $1.3303 resistance range to activate the stop on our recent short recommendation,” Richard Adcock, a currency and fixed-income technical strategist at UBS in London, wrote in a note to clients yesterday.
A resistance level is an area on a chart where analysts anticipate orders to sell a currency will be grouped and a support level is an area where they anticipate buy orders will be clustered.
Bernanke is scheduled to give a lecture today at George Washington University. Yesterday in a speech in Arlington, Virginia, he said that “further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”
The Fed bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011. The U.S. central bank has held its target interest rate to a range of zero to 0.25 percent since December 2008.
The yuan snapped a two-day decline after China’s central bank set a record high fixing for the third day as Chinese President Hu Jintao told U.S. President Barack Obama the country will allow a more flexible exchange rate. China plans to “let the market play a greater role” and increase flexibility of the yuan, Hu told Obama in a meeting in Seoul yesterday, according to a statement on the foreign ministry website.
“Hu’s remarks and the fixing give signals that the yuan will continue its appreciation path, although that could be a bit bumpy on the uncertain global economic outlook,” said Patrick Cheng, a Hong Kong-based foreign-exchange analyst at Haitong International Securities Co.
The yuan gained 0.11 percent to 6.3070 per dollar, according to the China Foreign Exchange Trade System. The People’s Bank of China set the yuan’s reference rate at 6.2840 per dollar today, the strongest level since the nation ended a dollar peg in July 2005 and 0.48 percent higher than yesterday’s closing price of 6.3140. The currency is allowed to move as much as 0.5 percent on either side of the fixing.
South Korea’s won strengthened for the first time in six days as the nation’s consumer confidence rose to the highest in four months. The Philippine peso climbed the most in two weeks on speculation funds sent home by citizens based abroad will rise to meet payments for school fees.
The won climbed 0.7 percent to 1,134.20 and the Philippine currency gained 0.3 percent to 42.929.
Implied volatility of three-month options of Group of Seven currencies fell to 10.02 percent, from as high as 10.18 yesterday, according to the JPMorgan G7 Volatility Index (JPMVXYG7). A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
The yen has depreciated 11 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was fallen 2.9 percent, the second-biggest drop. The euro has gained 0.4 percent, while the New Zealand dollar’s 3.4 percent jump is the biggest advance.
German Chancellor Angela Merkel said yesterday that her country may back plans for Europe’s temporary and permanent rescue funds to run in parallel. Finance ministers will meet in Copenhagen this week to discuss the prospect of combining the temporary European Financial Stability Facility and its permanent successor from July, the European Stability Mechanism.
“It’s certainly a positive for the euro if they manage to expand the bailout mechanism in Europe,” said ANZ’s Salter, who expects the currency to rise to $1.37 by year-end. “The risk discount that has been priced into the euro as a result of the potential for some serious deterioration in sovereign funding would be removed if that bailout package is in place.”
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